Proposed Rule

PROPOSED AMENDMENTS TO NFA'S ARBITRATION RULES
(Additions are underscored and deletions are bracketed)

MEMBER ARBITRATION RULES

* * *

SECTION 3. ARBITRATION PANEL

(a) Appointment of Panel.

All arbitration proceedings under these Rules shall
be conducted before an arbitration panel consisting of three NFA
Members or individuals connected therewith (one such Member or
individual designated as Panel Chairman) appointed by the Secretary
[President], except that where the aggregate amount of the claims
(exclusive of interest and costs) do not exceed $20,000, the Panel
shall consist of one such person unless the Secretary directs
otherwise.

(b) Disclosures Required.

Prior to being appointed to the Panel, each arbitrator
under consideration shall disclose to NFA [the President]
any circumstances that might prevent the arbitrator from acting
impartially.

(c) Appointment of Panel; Disclosure and Challenge.

The Secretary [President] shall thereupon
appoint, pursuant to Section 3(a), an arbitration Panel to resolve
the dispute. No arbitrator shall have acted as the mediator in
the same dispute. NFA [The Secretary] shall promptly notify
the parties of the names, business affiliations and other relevant
information. Any objection of a party to such appointment shall
be specific and for cause and submitted to NFA [the President]
in written form. Each party or their representative shall disclose
to NFA [the President] any circumstances likely to affect
an arbitrator's impartiality, including any bias or any financial
interest in the result of the arbitration or any past or present
relationship with the arbitrator. Any party who fails to disclose
such information shall be deemed to have waived any objection
to that arbitrator based on such information. Each arbitrator
appointed shall disclose to NFA [the President] any circumstances
likely to affect impartiality, including any bias or any financial
interest in the result of the arbitration or any past or present
relationship with the parties or their representative. Upon receipt
of such information from an arbitrator or other source, NFA
[the President] shall communicate such information to the parties,
and if NFA [the President] deems it appropriate to do so,
to the Panel and others. Thereafter, NFA [the President]
shall determine whether the arbitrator should be disqualified
and shall inform the parties of the decision, which shall be conclusive.

* * *

(e) Replacement.

If an arbitrator becomes ineligible or otherwise
unable to serve on the Panel, the Secretary [President]
shall (unless the parties request otherwise) appoint a replacement
to the Panel. In the event an arbitrator is excused or recuses
himself after the commencement of the hearing because a party
failed to disclose information which may be grounds for objecting
to the arbitrator, the party withholding the information shall
be deemed to have waived his right to object to proceeding with
the remaining two arbitrators. If a replacement is appointed
after the commencement of the hearing, the Panel shall determine
whether all or any part of any prior hearing sessions shall be
repeated.

* * *

SECTION 4. TIME PERIOD FOR ARBITRATION

No Demand for Arbitration may be arbitrated under
these Rules unless a Demand or notice of intent to arbitrate (See
Sections 5(a) and (c) below) is received by NFA [the Secretary]
within two years from the date when the party filing the Demand
for Arbitration knew or should have known of the act or transaction
that is the subject of the controversy. No counterclaim, cross-claim
or third-party claim may be arbitrated under these Rules unless
it is received by NFA [the Secretary] within two years
from the date when the party asserting the counterclaim, cross-claim
or third-party claim knew or should have known of the act or transaction
that is the subject of the counterclaim, cross-claim or third-party
claim or it is served on NFA [the Secretary] within 45
days from the date of service of the Demand for Arbitration on
the Respondent by NFA [the Secretary], whichever is later.
NFA [The Secretary] shall reject any claim that is not
timely filed. If, in the course of any arbitration, the Panel
determines that the requirements of this section have not been
met as to a particular claim, the Panel shall thereupon terminate
the arbitration of the claim without decision or award.

SECTION 5. INITIATION OF ARBITRATION

An arbitration proceeding under these Rules shall
be initiated as follows:

(a) Notice of Intent to Arbitrate.

If the two-year time limit under Section 4 of these
Rules is close to expiring, a person wanting to file a Demand
for Arbitration may notify NFA [the Secretary], either
in writing or orally, of such person's intent to arbitrate. NFA
[The Secretary] shall maintain a record of the receipt of each
such notice and shall promptly provide such person with a copy
of these Rules and a Demand for Arbitration form.

(b) Demand for Arbitration Pursuant to a Notice
of Intent to Arbitrate.

If a person who files a notice of intent to arbitrate
decides to proceed with NFA arbitration, such person shall, within
35 days after the date NFA provided the person with a copy of
the Rules and a Demand for Arbitration form under Section 5(a)
above, serve a completed Demand for Arbitration on NFA
[the Secretary].

(c) Demand for Arbitration.

NFA [The Secretary] shall promptly review
each Demand for Arbitration for completeness. Any Demand for
Arbitration which NFA [the Secretary] deems to be incomplete,
or which is not accompanied by the appropriate fee, shall be returned
by certified mail. In that event, such person shall serve a completed
Demand for Arbitration, together with any unpaid fee, within 20
days following transmittal by NFA [the Secretary]. NFA
[The Secretary] shall reject any Demand for Arbitration which
has not been timely filed, or for which the appropriate fee has
not been paid.

(d) Notice to Respondent.

NFA [The Secretary] shall promptly serve
a copy of the completed Demand for Arbitration on each person
named therein as a Respondent.

(e) Answer to a Demand for Arbitration

The Respondent shall serve an Answer on NFA
[the Secretary] within 45 days from the date of service of the
Demand for Arbitration on the Respondent by NFA [the Secretary].
The Respondent shall concurrently serve a copy of the Answer
on the Claimant. An allegation in the Demand for Arbitration
that is not denied in the Answer shall be deemed by the Panel
to be admitted.

(f) Counterclaim and Cross-claim.

If any counterclaim or cross-claim is asserted,
the party asserting the counterclaim or cross-claim shall promptly
remit the appropriate fee to NFA [the Secretary] (See Section
11 below). Any counterclaim or cross-claim which NFA [the
Secretary] deems to be incomplete, or which is not accompanied
by the appropriate fee, shall be returned by certified mail.
In that event, such person shall serve a completed counterclaim
or cross-claim, together with any unpaid fee, within 20 days following
service by NFA [the Secretary]. NFA [The Secretary]
shall reject any counterclaim or cross-claim which has not been
timely filed, or for which the appropriate fee has not been paid.

(g) Reply to Counterclaim or Cross-claim.

The person against whom the counterclaim or cross-claim
is asserted shall reply to the counterclaim or cross-claim by
serving a Reply on NFA [the Secretary] within 35 days after
the date of service of the counterclaim or cross-claim by NFA
[the Secretary], and concurrently shall serve a copy of the Reply
on the counterclaiming or cross-claiming Respondent. Any allegation
in the counterclaim or cross-claim that is not denied in the Reply
shall be deemed by the Panel to be admitted.

(h) Third-party Claim.

A Respondent may file a third-party claim against
a Member or Associate under these Rules. If the third party is
not a Member or Associate, such person must agree or have agreed
to submit to arbitration. If any third-party claim is asserted,
the Respondent asserting the third-party claim shall promptly
remit the appropriate fee to NFA [the Secretary] (See Section
11 below). Any third-party claim which NFA [the Secretary]
deems to be incomplete, or which is not accompanied by the appropriate
fee, shall be returned by certified mail. In that event, such
person shall serve a completed third-party claim, together with
any unpaid fee, within 20 days following service by NFA
[the Secretary]. NFA [The Secretary] shall reject any
third-party claim which has not been timely filed, or for which
the appropriate fee has not been paid.

(i) Notice to Third-party Respondent.

NFA [The Secretary] shall promptly serve
a copy of the completed third-party claim on each person named
therein as a Respondent, and a copy of any agreement to arbitrate.

(j) Answer to Third-party Claim.

The third-party Respondent shall serve an Answer
on NFA [the Secretary] within 45 days from the date of
service of the third-party claim on the Respondent by NFA
[the Secretary]. The Respondent shall concurrently serve a copy
of the Answer on the third-party Claimant. An allegation in the
third-party claim that is not denied in the Answer shall be deemed
by the Panel to be admitted.

* * *

(l) Late Answer or Reply.

NFA [The Secretary] shall accept any Answer
or Reply filed prior to the hearing. However, NFA [the
Secretary] or any party may present an objection to the Panel
with regard to the timeliness of any filing.

* * *

SECTION 6. RIGHT TO COUNSEL.

(a) A party may be represented at any time throughout
the arbitration proceeding, including a mediation proceeding
[conference], by an attorney-at-law or other representative and
shall serve timely notice in writing on NFA [the Secretary]
and the other parties of the name and address of any such representative.
The Panel may bar from the proceeding any representative for
dilatory, disruptive or contumacious conduct.

(b) A representative of a party may withdraw upon
submitting to NFA [the Secretary] an affidavit that the
party represented has actual knowledge of the withdrawal or that
the representative has made a good faith effort to provide such
notice.

SECTION 7. PRE-HEARING.

(a) Exchange of Documents and Written Information.

(1) The parties shall cooperate, without resort to
issuance of subpoenas, in the voluntary exchange of material and
relevant documents and written information which may serve to
facilitate a fair, equitable and expeditious hearing.

(2) When a claim is accepted by NFA and served
on each person named as a Respondent, NFA shall identify, from
a list approved by NFA's Board of Directors, documents to be automatically
exchanged between the parties. The parties shall exchange those
documents no later than 15 days after the last pleading is due.

(3)[(2)] All other
requests for documents and written information shall be served
on the responding party by the requesting party no later than
30 days after the last pleading is due. The responding party
shall serve the requesting party with the documents and written
information, including written objections, no later than 30 days
after the request is due. [Written requests to compel production
of documents and written information must be served on the Secretary
and all parties no later than 10 days after the written objections
are due, and written responses to the request to compel must be
served on the Secretary and all parties no later than 10 days
after the request to compel was served. Unless the Panel directs
otherwise, requests to compel will be decided on the written submissions
of the parties.]

(4)Written requests
to compel production of documents and written information must
be served on NFA and all parties no later than 10 days after the
written objections are due. Written responses to the request to
compel must be served on the Secretary and all parties no later
than 10 days after the request to compel was served.

(5)A request to compel
must include a written certification by the filing party or its
representative. The certification must state that the filing
party or its representative has made a good faith effort to resolve
the matters forming the basis for the request through either a
telephone conference or in-person meeting with the other party
or its representative.

(6)Unless the Panel
directs otherwise, requests to compel will be decided on the written
submissions of the parties. The Panel, in its discretion, may
schedule a discovery conference to decide any outstanding discovery
issues. The conference may be conducted in person or by telephone.

(7)A request to compel
that is not timely filed under Section 7(a)(4) above will not
be allowed except for good cause shown as to why it was late.

(8)[(4)] Evidence that
is otherwise discoverable or admissible in an arbitration proceeding
shall not be rendered non-discoverable or inadmissible as a result
of its use in connection with a mediation proceeding [conference].
However, documents and written information in the mediator's
possession are not subject to discovery and may not be subpoenaed
for use in the subsequent arbitration hearing.

(b) Documents to be Introduced into Evidence.

(1) At least 35 [15] days prior to the date
assigned for an oral hearing, each party shall serve on every
other party all documents in such party's possession which the
party intends to introduce into evidence at the hearing as part
of its direct case and shall concurrently serve sufficient copies
of the documents on NFA [the Secretary].

(2) At least 15 days before the date assigned for
a summary proceeding to commence, each party shall serve on NFA
[the Secretary] sufficient copies of all documents in such party's
possession which are to be submitted to the Panel as part of the
party's case and shall concurrently serve copies on every other
party. At least five days before the date assigned for a summary
proceeding to commence, each party shall serve on NFA [the
Secretary] sufficient copies of all documents in such party's
possession which are to be submitted to the Panel to rebut the
documents previously served by another party and shall concurrently
serve copies on every other party.

(c) Hearing Plan.

The parties shall cooperate with NFA in the formulation
of a written hearing plan. A hearing plan is a written document
that summarizes each claim, Answer and Reply; identifies any facts
the parties have agreed to; identifies the factual and legal issues
in dispute; and lists the witnesses and exhibits that will be
presented at the hearing. The parties shall serve on NFA and
all parties a joint hearing plan, or separate plans if they cannot
agree on a joint one, no later than 30 days before the oral hearing
date. The Panel, in its discretion, may conduct a hearing plan
conference with the parties in person or by telephone to modify
the plan. [The Panel may order the parties to formulate a
written hearing plan and set a date for serving it on NFA.]

(d) Failure to Comply.

The failure of any party to comply with Sections
7(a) through 7(c) or any order of the Panel may be brought to
the attention of the Panel by NFA [the Secretary] or the
party seeking such documents or information. The Panel may take
such actions in regard to the failure as are just, including,
among other things, the following:

(1) finding that the matters regarding which the
request was made or any other designated facts shall be taken
to be established for the purpose of the action in accordance
with the claim of the party making the request;

(2) refusing to allow the nonresponsive party to
support or oppose designated claims or defenses or prohibiting
him from introducing designated matters in evidence;

(3) striking out pleadings or portions thereof, staying
further proceedings until the nonresponsive party complies with
the request, dismissing the action or proceeding or any part thereof,
or rendering an award by default against the nonresponsive party;
[.]

(4)refusing to hear
the testimony of any witness or to accept any document into evidence
if the witness or document was not listed in the hearing plan.

(e) Other Pre-Hearing Motions.

(1)Motions to dismiss
for failing to state a claim will not be heard by the Panel. Other
motions to dismiss must be included in a timely filed Answer or
Reply. Motions for summary judgment may be raised at any time.
Motions for directed verdict may be raised at the hearing.

(2) Except as provided
in Section 7(a) (4) [(2)] above, a party has 10 days from
the date a pre-hearing motion is received in which to serve a
written response on NFA [the Secretary] and all other parties.
However, where a motion is received less than 20 days in advance
of the date the hearing or summary proceeding is scheduled to
commence, NFA may, in its discretion, require a written response
within less than 10 days. No written replies to a party's response
to a motion will be allowed except in the Panel's discretion.

(f) Pre-hearing Decisions by the Arbitrators.

With the consent of the other Panel members,
one or more of the arbitrators may act on behalf of the Panel
to decide any pre-hearing motions from the parties or to conduct
any discovery or hearing plan conference with the parties. However,
the Panel may not postpone the hearing or impose sanctions without
a majority decision.

SECTION 9. HEARING.

* * *

(b) Notice of Hearing.

The place and time of the hearing shall be determined
in the sole discretion of the Secretary, who shall endeavor to
accommodate, if possible, the preferences of all parties and members
of the Panel. Upon setting the initial hearing date, NFA
[the Secretary] shall serve notice on each party at least 45
[20] days before the hearing of the date, time and place. NFA
[The Secretary] shall give reasonable notice of any rescheduled
hearing date.

* * *

(d) Procedure.

* * *

(9) All conduct and statements, offers and promises,
whether oral or written, made by the parties or their representatives
in connection with a mediation proceeding [conference]
shall be confidential and shall not be admissible for any purpose,
including impeachment, in any pending or subsequent arbitration
proceeding. The mediator may not be called as a witness in a
pending or subsequent arbitration proceeding.

* * *

(g) Reopening the Record.

The record may be reopened by the Panel on its own
motion or on the motion of a party for good cause at any time
prior to the Panel rendering its [issuance of the] award.
A motion to reopen the record shall stay automatically the time
period in which the award shall be rendered [issued].

* * *

(i) Summary Proceeding.

The proceeding shall be conducted entirely through
written submissions when:

(1) the aggregate amount of the claims (exclusive
of interest and costs) does not exceed $10,000, unless the Secretary
or the Panel directs otherwise;

(2) the aggregate amount of the claims (exclusive
of interest and costs) is more than $10,000 but not more than
$20,000, unless the Secretary or the Panel directs otherwise or
one of the parties to the proceeding serves a written request
for an oral hearing on NFA [the Secretary] no later than
30 days after the last pleading is due; or

(3) the Panel has consented to the written agreement
of the parties to waive the oral hearing. A written agreement
is not required of any party which has waived its right to an
oral hearing under any other provision of these Rules.

SECTION 10. AWARD, SETTLEMENT AND WITHDRAWAL

(a) Issuance.

Within 30 days after the record is closed, the Panel
shall render its award, in writing, dated and signed by the Panel
members, which shall be delivered to NFA [the Secretary],
who shall promptly serve a copy on each party or its representative
either personally or by certified mail. The award shall be that
of the Panel majority.

* * *

(c) Finality.

The Panel's award shall be final on the date thereof.
The award may be modified by the Panel if a party submits a written
request for modification which is received by NFA [the
Secretary] within 20 days from the date of service of the award
on the parties, and the Panel deems modification necessary because:

(1) there is an evident material miscalculation of
figures or an evident material mistake in the description of any
person, thing, or property referred to in the award;

(2) the arbitrators have awarded upon a matter not
submitted to them, unless it is a matter not affecting the merits
of the decision upon the matter submitted; or

(3) the award is imperfect in matter of form not
affecting the merits of the controversy.

The timely filing of a request for modification
shall stay automatically the finality of any award until the Panel
either modifies the award or denies the request for modification.

* * *

(g) Failure to Comply

(1) [The failure of a
Member or Associate to comply with an award or a settlement agreement
or to pay any fee assessed under Sections 11 or 12 shall be grounds
for disciplinary action under NFA Compliance Rules (See Compliance
Rule 2-5).] When any Member or Associate fails to comply with
an award [or pay any fee] within 30 days from the date of service
of the award by NFA or fails to comply with a settlement agreement
within 30 days after NFA terminates the arbitration proceeding
pursuant to Section 10(h) or such other period as specified in
the award or settlement agreement, or fails to pay any fee
assessed within the time so ordered by the Panel, and unless
there is pending a request to modify the award under Section 10(c)
or an application to vacate, modify or correct the award in a
court of competent jurisdiction, that Member or Associate may,
on 30 days written notice, be summarily suspended by the President
until such award, [or] settlement agreement, or order
of the Panel has been satisfied. Any Member or Associate
subject to a summary suspension may, within 30 days of the date
of service of the Notice of Suspension, appeal the suspension
to the Commission and may, within 10 days of service of the Notice
of Suspension, petition the Commission for a stay of the suspension.

(2)A Member which
guaranteed an introducing broker during the relevant time may,
on 30 days written notice, be summarily suspended by the President
if the guarantor fails to pay an award issued against the introducing
broker under Section 10(c) or a settlement agreement entered into
by the introducing broker under Section 10(h) within 30 days after
the guarantor has received actual notice that the introducing
broker has failed to comply with the award or settlement agreement.
The suspension shall be lifted if the award or settlement agreement
is satisfied.

(3)In lieu of or in
addition to suspending any Member or Associate for failing to
comply with an award, settlement agreement or Panel order to pay
a fee or monetary sanction, NFA may initiate disciplinary action
under its Compliance Rules for the failure of any Member or Associate
to comply with the award, settlement agreement or Panel's order.

(h) Satisfaction of Demand.

At any time during the course of an arbitration,
a party may satisfy a claim by payment or settlement, including
settlement through mediation. The arbitration proceeding will
terminate upon receipt of written notice of satisfaction and withdrawal
of the claim duly executed by the parties and submitted to NFA
[the Secretary]. If NFA [the Secretary] is notified that
a claim has been settled, but the notification is not in writing
or is not duly executed by the parties, NFA [the Secretary]
shall send written notice to the parties that the arbitration
proceeding will terminate within 20 days of service of such notice
unless NFA [the Secretary] receives written notice that
the claim has not been settled.

* * *

(j) Withdrawal of Claim.

(1) At any time during the course of the arbitration,
a party may withdraw a claim against any Respondent who has not
filed an Answer. A written notice of withdrawal must be filed
with NFA [the Secretary]. The withdrawal will be without
prejudice unless the notice states otherwise.

(2) After a party has filed a pleading, a party may
not withdraw a claim against that party unless the party consents.
The notice and the consent must be in writing and filed with
NFA [the Secretary]. The withdrawal will be without prejudice
unless the notice or the consent states otherwise.

SECTION 11. ARBITRATION FEES.

(a) Filing and Hearing Fees.

Each Member or Associate filing a claim under these
Rules shall pay a filing and hearing fee based on the amount claimed,
including punitive and treble damages but exclusive of interest
and costs, as follows:

Amount of Claim

Filing Fee

Hearing Fee

$ 0.00 - $ 10,000.00

$ 750.00

$ 50.00

$ 10,000.01 - $ 20,000.00

$ 1,900.00

$ 150.00

$ 20,000.01 - $150,000.00

$ 4,400.00

$ 725.00

$150,000.01 - $500,000.00

$ 4,400.00

$ 1,450.00

More than $500,000.00

[$150,000.00]

$ 4,400.00

$ 2,900.00

[$1,450.00]

NFA will assess hearing fees for discovery conferences, hearing
plan conferences, and preliminary or other hearing sessions.
Where the hearing fees paid by the parties is not enough to cover
the standard preset fees to be paid by NFA to the arbitrators,
NFA shall collect additional fees to cover the fees to be paid
to the arbitrators. If a case requires more than four days of
hearing, the hearing fees will be twice the standard preset fees,
unless the arbitrators order the fees to remain at the standard
amount. [Where multiple hearing sessions, including preliminary
hearing sessions, are required in excess of those covered by the
hearing fee, the arbitrators shall assess fees for the additional
hearing sessions in an amount equal to the standard preset fees
to be paid by the Secretary to the arbitrators for the additional
hearing sessions.] The arbitrators, in their discretion, may
assess the entire fee against any party or may divide the fee
among any or all parties. Hearing [session] fees shall be paid
to NFA [the Secretary] in advance of the hearing sessions
to which they apply.

(b) Refunds.

(1) A full refund of any filing and hearing fees paid under Section
11(a) above shall be made if, prior to the appointment of a Panel,
a claim filed under Section 2 above is found to be not arbitrable.

(2) If all claims have been settled or withdrawn and NFA
[the Secretary] receives written notice of the settlement or withdrawal
at least eight days in advance of the first scheduled hearing
or preliminary hearing date, the hearing fee shall be refunded
to the party paying the fee.

(c) Postponement Fees.

Each party causing an adjournment or postponement of any scheduled
oral hearing shall pay to NFA [the Secretary] a postponement
fee of $300 for the first postponement request by that party,
$500 for the second request by that party, and $1,000 for any
subsequent request by that party. This fee may be waived at the
discretion of the arbitrators. The arbitrators also may assess
reasonable and necessary expenses incurred by the parties and
their witnesses, including reasonable attorneys' fees, as a result
of a postponement. No fee shall be assessed if an arbitrator
becomes ineligible or otherwise unable to serve, or if a hearing
extends over the expected time period.

* * *

SECTION 15. MISCELLANEOUS.

* * *

(b) Service of Process.

Unless otherwise indicated, service may be accomplished by hand
delivery, or by first class or certified mail, or by use of a
generally recognized overnight delivery service to the party's
last known business or home address on record with NFA. All documents
which are served on NFA [the Secretary] shall be concurrently
served on each party who has filed a pleading. Service on a party's
representative shall be service on the party.

(c) Address of Record.

A party shall promptly notify NFA [the Secretary] of any
change in the party's address or addresses or the address of the
party's representative on record with NFA.

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